How will Brexit impact the insurance market in Canada?

While the U.K.’s decision to leave the European Union in the near future may seem like a relatively localized problem, its economic impact has reverberations worldwide, and likely will continue to do so for some time to come. That is certainly the case in Canada and the U.S., where stock prices fell sharply and immediately after the results of the vote were announced. Now, experts also believe that the impact it has on the Canadian insurance industry could be significant as well.

One of the biggest reasons for this is that the vote resulted in a significant devaluing of the British pound in comparison with the U.S. dollar, and that experts believe there will be subsequent financial difficulties visited on the U.K. in the near future, according to a report from Canadian Insurance Top Broker. That may also lead many global insurers to start seeing diminishing interest rates as a result, because in general, they tend to move more or less in the same direction as a nation’s gross domestic product. For now, some insurers think they can hold steady, but how long that can last obviously remains to be seen.

Brexit could create serious issues for the Canadian insurance market.

Specific to CanadaBut that, of course, is the global picture. What Brexit means for Canada specifically is a little harder to determine, the report said. Three of the nation’s top-five insurers (Nos. 2, 4, and 5) are based in the U.K. and that could adversely affect the industry as a whole. Many more have close ties to the British economy even without being based there. However, as of now, many insurers continue to issue assurances that they’re well-positioned to handle the near-term impact.

“Our underwriting appetite and capacity remain unchanged following the referendum,” wrote the CEO of one major global insurer, according to the site. “Fundamentally, we believe we are well-positioned given our strong global network and footprint which allows us to continue delivering for our clients, uninterrupted. At this time, policy wordings remain unchanged.”

On the other handHowever, it’s worth noting that while companies say they’re in perfectly fine shape with respect to their positions and Brexit, that didn’t stop some of Canada’s largest U.K.-based insurers from suspending stock trading in the immediate wake of the vote, according to Insurance Business Canada. That prevented a sell-off of the companies’ stocks, which helped to further insulate themselves from the financial fallout of Brexit. Further, it’s possible that these issues, which have been looming over the U.K. insurance industry for some time, even before the “Leave” vote, may lead insurers to move out of the U.K. to further protect themselves.

Certainly, those in the insurance industry will have to closely monitor proceedings here and determine what is best for their companies and policyholders on an ongoing basis, because if interest rates start to slip that could have a negative effect on the market as a whole. Of course, exactly how serious that impact is remains to be seen, but having potential fallback positions in place might be a good place for many insurers to start.